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Management principles – You can’t Manage what you don’t Measure

Management and Measurement

You can’t manage what you don’t measure is an old management adage that has been used for many years and while most attribute it to Peter Drucker, some claim that the quote was first used by Dr. W. Edwards Deming, although it is a bone of contention whether or not the quote is used in the correct context.

Irrespective of who said it first, I have always agreed with the principle. Coming from a corporate background where this is one of the management principles often used, I was surprised to learn that there are those that strongly disagree with the statement. This group argues that there are many things being managed at work that aren’t measurable, from the confidence we instill in a new, young manager, to the quality of new hires.

The argument is made that quantity is easy to measure, i.e., how much salespeople sell, how many leads marketing creates, or how many phone calls telemarketing makes, but that quality can’t be measured, i.e., excellent customer service, good technical support, or what differentiates a good consultant from a great one.

What to measure

Many organizations use Key Performance Indicators (KPIs) at multiple levels to measure their success at reaching targets, and will then manage the factors influencing the KPI to get it to where they want it to be. A KPI is a value that is measured and shows how effective a company is in reaching key business goals.

Setting a KPI and measuring a specific value is however not always as straightforward as it might seem. To set a KPI, the underlying business objective needs to be properly understood. In one example, a department manager’s KPI included the volume of sales, measured in dollars. In an effort to improve sales, the manager decided to change the remuneration of her sales reps from a fixed salary to a small, basic salary plus commission on sales made. The idea behind this was to incentivize the work, which would lead to increased sales. In the early months after implementing the change, the sales made by account reps did indeed increase dramatically. The CFO then however discovered that the profit margin on those increased sales was substantially lower than the minimum the company expected. The sales reps were discounting the product to increase sales, resulting in a high commission, but the net effect was that the company made less profit.

It is critical that the company’s objectives are clearly understood by all parties and that a suitable metric is measured to check if the objective is being met.

Can quality be measured?

Those arguing that quality, such as excellent customer service, or good technical support can’t be measured, often express the view that the only way that a company can determine how good their service or support is, is by asking the customer. I agree with that statement, but when you do that, aren’t you measuring these aspects? If 50% of your customers feel that your service and support is good, that is a measure against which you can manage and improve those objectives.

The same can be done for any qualitative metric. It merely becomes a question of what is appropriate to measure, and how to obtain those metrics. Qualitative measures often have to be done indirectly, i.e., you need to measure indirect results rather than direct ones.

The role of Business Intelligence

With the sheer volume of data available across the business, and with much of it residing in different systems, it becomes very difficult to extract the relevant metrics to measure and improve. This is where Business intelligence or BI comes in.

BI utilizes computer-based techniques to spot, extract, and analyze business data, including things like sales, marketing, and production in order to make substantial improvements. Business Intelligence uses data already collected in the business. It is able to utilize data from such diverse sources as website analytics, accounting systems, customer relationship management (CRM) and email management systems.

A Business Intelligence system can automatically use and analyze all the information from these applications in real-time. This enables companies to quickly see, manage and improve their performance. BI goes further than simply measuring performance so that it can be improved, but also helps identify weaknesses in the company.

When an organization grows to the point where huge volumes of data are involved, analytics are used to examine large and varied data sets to uncover correlations, hidden patterns, customer preferences and market trends; so, organizations can make more-informed business decisions.

Both BI and big data analytics can hugely benefit Organization & Planning within any business. If you have all this information, irrespective of how exactly it was obtained or measured, managing the direction you want to go becomes an informed decision that can be planned for, rather than a guessing game based on ‘gut feel.’

A crucial element that is required in today’s fast-moving world is an organization’s ability to respond rapidly to changes in both the external and internal environment. This is known as Business agility, and it is not possible to do if the business does not measure what is going on inside and around it, and then manages accordingly.